A Review of Preliminary Notice Requirements

Jul 26, 2016

Timely filing is essential when serving a preliminary notice.

Subcontractors and suppliers serve Preliminary Notices to ensure their right to file liens if they are not paid. This is standard procedure.

A Preliminary Notice benefits contractors and owners, as well as subcontractors and materialmen, because it helps contractors record and track their accounts payable. It is an acknowledgement that two parties have entered into a business relationship and should not be construed as adversarial.

That being said, Preliminary Notices are designed for the benefit of those who provide goods and services to general contractors and project owners.

Filed correctly, “prelims” reduce litigation.

But, as James Wakefield notes in an article in Construction Litigation Blog, the reverse is also true. “Our best estimate is that 30 percent of the commercial construction disputes we handle have their genesis in a problematic Preliminary Notice.”

Mr. Wakefield, citing research done by CRM Lien Services, outlines the steps required to ensure a prelim is enforceable under the California Civil Code. (Although the requirements may vary somewhat in other jurisdictions, most, if not all states, have similar statutory provisions.)

It behooves all parties entering into a construction contract to know what the Code provisions, and especially the filing deadlines, are in the jurisdictions where they have projects.

In California, a Preliminary Notice must be served on the general contractor, the owner, and lenders within 20 days from the date when the “claimant first furnished… the work or improvement.”

Mr. Wakefield stresses that timely filing is the key to protecting a claimant’s lien rights.

Experienced contractors and subcontractors may be thinking, “We know this.” However, it is useful to be reminded that Preliminary Notices are best filed, as standard procedure, in conjunction with the signing of a contract. If a claimant waits until after a dispute over payment arises, the right to recover payment for material or services provided more than 20 days prior to the filing may be forfeited.

Source—
A Refresher on “Prelims” – Part 1, James Wakefield, Construction Litigation Blog, 06, 2016.